Apple Stock: $500 And Climbing?

Already the most valuable company in the world, Apple hit the $500 mark, just $40 billion shy from breaking the $500 billion market cap. So what does this mean to investors and what does this mean to the public, now that Steve Jobs isn't at the helm? There are pundits on both sides of the table arguing that it is overpriced, and others saying it still has room to move up. To determine this, many factors are in play and the question is what catalyst is left to drive the stock. But before looking into what could provide a catalyst for the stock, let's see a brief history of Apple's market cap based on the last trading day of the year:

One way to look at it, investing $10,000 into Apple in 2000 would be worth about $966,667 today. Even since December 2010, just a little over a year ago, Apple has increased by $230 billion, almost 98%. Everyone has probably heard by now that Apple is larger than Google and Microsoft combined, or that the iPhone alone is a bigger business than Microsoft.

Hindsight is 20/20. So instead, looking forward can Apple continue to grow? The iPhone consisted of over half of Apple's revenue in the previous quarter, and that was without sales in China. If the iPad is included, those two product lines consist of 72% of Apple's revenues, products that did not exist even five years ago.

So What's Next?The cellphone market, including smartphones is expected to increase to 2 billion units for 2012, up from approximately 1.5 billion in 2011. Those 37 million iPhones, which consisted of about a quarter of all smartphone purchases in Apple's last quarter, now look tiny in comparison to how large the overall cell phone market is. As the smartphone segment is the fastest growing market within cellphones, Apple is expected to grow along with it especially since the iPhone is now being sold in China. The iPad is arguably the most underestimated product in Apple's lineup. Once scoffed as being a giant iPod Touch, it has sold over 55 million units since the original launch in early 2010, with some forecasts stating it will sell an additional 50 million units in 2012 alone. Tim Cook is stated on record that he believes tablets will eventually sell more units than the entire PC market, and with the iPad being the dominant tablet, Apple should benefit.

Once the only product line within Apple, the Mac contributes about 18 to 20% of their revenue. Now going onto its 24th consecutive quarter of sales growth, the Mac benefits from the halo effect coming from the iPad and iPhone, selling over 5 million in Apple's last quarter. However impressive the Mac's growth is, it still only consists a little over 5% of the worldwide market share for computers, so that leaves room for continual growth. With an annual update being implemented for their operating system moving forward, OSX Mountain Lion due out this summer, the Mac should continue to outperform the rest of the industry.

Their $100 billion in cash is both a nice problem to have and a curse. Investors have pressured Apple for years to put the cash to good use. Whether Apple does or not remains to be seen. There are challenges and the majority of their cash is located overseas from their international operations, and to transfer it back to the United States would cost quite a bit in taxes. However, according to Morgan Stanley, Apple could generate about $18 billion in free cash flow from their U.S. operations which could support a 1.9 to 3.8% dividend. If Apple were to do so, this would be another catalyst for the stock.

Future products are another driver. Again, the iPhone and iPad didn't exist five years ago, and so whether the next product is the rumored Apple TV or something else, remains to be seen. No one could have predicted that Apple would create the iPod back in 2001, so it's futile to guess what the next product is. Whatever it is, it should help keep Apple moving forward.

ChallengesAs with any pundit through the years saying the end of Apple is near, it is hard to believe this will come to fruition. The most likely argument is that Steve Jobs is no longer at the helm so innovation will stagnate. Other factors include litigation with Samsung, among other competitors. For a short time Apple had to stop selling the iPhone and iPad through their online store in Germany from a patent complaint coming from Motorola. It has since been reversed but with such high stakes on the line it might be only a matter of time before a competitor lands a blow against Apple.

The Bottom LineApple is nearly a $500 billion company. Although still far from Microsoft's record, set in late 1999 at $600 billion, at Apple's current growth it might not be too long before it holds that title as well. Although not overpriced, it is not the growth stock it once was. It's not without its risks, so investors may be wise to hold onto it in hopes of a dividend and see where the ride takes them.

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